Bank of England is Expected to Keep Interest Rates Low Until 2017

It blamed emerging market economies for that weakness, saying growth in those regions had “slowed markedly”.

But yesterday’s comments from United States Federal Reserve chair Janet Yellen that a USA rate rise in December is a “live possibility” has already seen financial markets bring forward their expectations for the UK to follow suit with a hike at the end of 2016. In September, the 12-month inflation rate stood at minus 0.1 percent, around 2 percentage points below the inflation target, the bank said. “There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies”, says the MPC report.

The committee was split 8-1, with Ian McCafferty the only member voting to raise rates. Analysts have continually suggested that one or even two other members of the committee will join him, but that still hasn’t happened yet.

It was this latter expectation that the BoE used as a working assumption in its forecast update, which predicts that inflation – now below zero – would nudge above 2 per cent in two years” time on a so-called “modal’ projection basis.

The November report and press conference, however, was as much about the dog that didn’t bark.

“Today is the second ‘Super Thursday” of the Bank of England’s latest policy of releasing the minutes of its latest meeting and this quarter’s Inflation Report on the same day.

“[The] duration of effects of low oil and strong sterling are longer than previously thought”, said Kallum Pickering, senior United Kingdom economist at Berenberg, in a note. It fell a cent against the dollar, to just over 1.53.

In another sign that it was relaxed about keeping its stimulus for the economy in place, the Bank said it would keep on reinvesting the proceeds from the 375 billion pounds ($571 billion) of government bonds that it bought during the crisis until it had raised interest rates to around 2 percent.

“At a few point, rates are going to move”.

Meanwhile, the minutes of the this month’s MPC meeting showed that all members agreed that the bank rate do rise, it is set to do so more gradually and to a lower level than in recent cycles, given the likely persistence of the headwinds weighing on the economy.

“Although it has moderated, growth is projected to pick up a little towards the middle of next year, as a tighter labour market and stronger productivity support real incomes and consumption, and as accommodative credit conditions encourage strong investment and a pickup in the housing market”. In its inflation report on Thursday, the central bank said inflation is likely to stay below 1% until the second half of 2016, and only slightly overshoot the target in 2017, as the chart shows. This does not tie in with the message from surveys of bank economists who think a move will come earlier and in the first half of the year.